The Fail Whale trades showed that massive, as-yet unregulated risk still exists in our financial system, with the potential to bring down the economy once again and trigger massive taxpayer bailouts. Since the Administration already passed a law that was supposed to deal with that, they’re scrambling to restore what little of value existed in those laws.

Nearly two years after the signing of a major law to boost oversight of Wall Street, two Democratic senators are calling on President Obama to speak out even more strongly in favor of a new federal rule that they say should have banned the trading that led to JPMorgan Chase’s $2 billion or more loss.

But Obama is in a difficult spot. Although he introduced and supports the Volcker Rule, which bans banks from gambling with their own money, regulators have yet to finish writing the rule and haven’t determined whether the trading would have violated the draft version of the rule that has been released [...]

“There is no way they should be silent in this matter,” said Sen. Carl Levin (D-Mich.), one of the authors of the Volcker Rule. “It’s my hope they’ll speak out very clearly on this subject.”

The article intimates that independent regulators have authority over writing things like the Volcker rule, and that the White House and the Treasury Department have limited ability to ensure that the rule properly follows from the legislative mandate. Given that a senior Administration official told reporters just yesterday that the losses at JPMorgan Chase would “inform… how the ultimate contours of the Volcker ruler come out–make sure that it is strong,” it’s clear that not even the Administration believes that. They appointed the regulators, and Treasury has plenty of control over almost everything related to Dodd-Frank. If they want a stronger Volcker rule, they’ll get it.

The hurdle for a tighter Volcker is embedded in its very design. I don’t agree often with Tom Donohue, the head of the US Chamber of Commerce, but he’s not wrong that the Volcker rule is needlessly complex and subject to wide interpretation. That’s precisely what reformers mean when they say that far more simple rules are needed, the kind of big dumb rules that make it hard for Wall Street lobbyists to play the loophole game.

Another route would be to implement the Volcker Rule as Paul Volcker envisaged, meaning without the portfolio hedging exemption that JPMorgan relied on. Or officials could enforce Sarbanes Oxley, which has the chief executive officer certify the adequacy of internal controls, which for a major financial firm includes risk controls. Had any chief executives been targeted for Sarbanes Oxley violations for the massive risk management failures during the financial crisis, it’s pretty likely that Jamie Dimon, head of JPMorgan, would have thought twice before giving the chief investment officer both the mandate and the rope to enter into risky trades.

Maybe it’s time to recognize that these firms are too big and in too many complex businesses to be managed. Jamie Dimon was touted as a star who could supervise a sprawling firm running huge risks, and he fell short because no one can do the job adequately. A less disaster-prone financial system requires more simplicity and redundancy. Re-instituting Glass-Steagall or other variants on the narrow banking theme isn’t a full solution, but it would make for a good start.

Andrew Ross Sorkin’s ridiculous counterpoint that the Fail Whale trades would not have been stopped by Glass-Steagall because they happened on the commercial side of the bank – yes, that’s THE ENTIRE POINT – just show how deep the concept of a “right to profit” has oozed into not only the financial industry but those who cover for them in the media. If we’re going to do something about firms that are too big to manage, let alone fail, and prevent the temptation for economy-threatening risk and taxpayer-funded bailouts, we’re going to have to insert as much simplicity back into the banking system as possible.